What state should I incorporate in?

Description

Eric Save, Partner at K&L Gates LLP explains why it’s common to incorporate in Delaware and what other options you have.

Video Transcript

What state should I incorporate in?

For companies that are looking to set up a subsidiary in the United States or founders that are from another country that is looking to set up their company as a US company, one key thing to understand is that corporate law in the United States is not federal, it’s state law. So every state within the United States has its own corporate laws. When you set up an entity here you set it up under state law, and so you do have to choose a state within the United States where you want to incorporate your business. But one key thing to understand is that if you decide to set up your corporation or LLC as a Delaware corporation or Delaware LLC, that doesn’t mean that you actually have to have your office in Delaware or employees or other operations there.

You could be a company that operates in California or in any other state, but you set up your company as a Delaware company, which just means that you are governed by Delaware corporate law. When you do that you have to register in the state where you’re actually doing business so, if you were say a California company, that’s incorporated in Delaware, you would be incorporated in Delaware as for the corporation or LLC, but then here in California you would need to register with the California Secretary of State to be what they call qualified to do business in California. If you actually have operations here in the state of California.

In terms of where to go, which state to incorporate under, most people particularly foreign funders and investors, will choose Delaware and the reason for that is, Delaware is sort of more familiar to people. The laws of Delaware are more familiar to people both in the United States and abroad. The reason for that is just the fact that over the years, over decades, so many companies have incorporated under Delaware law. There’s a particular court in Delaware called the Delaware Chancery Court, that decides cases of corporate law so there’s a lot of judicial opinions interpreting and analyzing the corporate law Delaware. So, compared to a lot of other states, Delaware has a very sophisticated and well-developed corporate law, that’s very well understood. Judges in the Chancery Court who understand the corporate law very well are viewed as making, you know, decisions that make sense and that are well informed. And so people just feel very comfortable with Delaware, they’re used to seeing it and like I said, you don’t have to operate in Delaware if you’re a Delaware Corporation.

What you do need to have is what’s called the agent for service of process, so you just need to identify an entity or person that does have a Delaware address who would be the agent for the company to receive your lawsuits, if there’s somebody that wants to sue the company and can’t find your address, they have the option of delivering the lawsuit to the agent that’s located in Delaware. But there are services companies that provide the service to founders of companies. So they offer you their address and they offer to be your agent so that they receive anything in the mail address to the corporation and they receive it for you. And that can just be set up without you actually going in renting space or buying property in the state of Delaware, you can just set it up by contacting one of these companies and working with them and the vast majority of companies that incorporate here in the US do it that way.